The acquired assets consist of Holdings’ Valley Wells sour gas gathering and treating system, compression assets that are part of the Valley Wells and Lancaster gathering and treating systems and two NGL pipelines that are currently under construction.
Total consideration for the assets consists of 4.5 million new Southcross common units issued to Holdings and $15 million in cash, equating to total consideration of approximately $78 million. Southcross expects to spend approximately $26 million in remaining capital expenditures towards the completion of the NGL pipelines. Once the NGL pipelines are placed into service, which is anticipated in July, the total drop-down assets are expected to generate annualized EBITDA of approximately $18 million through largely fixed fee contract arrangements.
The Valley Wells gathering system is located in the Eagle Ford shale area in La Salle County and services production from EP Energy. The system has sour gas treating capacity of approximately 100 MMcf/d and is already connected to Southcross’ rich gas system for transport and processing. The acquisition includes over 50,000 horsepower of compression assets that serve both the Valley Wells and Lancaster gathering systems located primarily in Dimmit, Frio, and La Salle counties. The NGL pipelines include a Y-grade pipeline connecting Southcross’ Woodsboro processing facility to Holdings’ Robstown Fractionator and a propane pipeline from Southcross’ Bonnie View Fractionator to the Corpus Christi, Texas, area.
The transaction has been approved by the board of directors of the general partner of each of Southcross and Holdings, as well as by the conflicts committee of the Southcross board. The conflicts committee, which is composed entirely of independent directors, retained Akin Gump Strauss Hauer & Feld LLP as independent legal counsel and Jefferies LLC as independent financial advisors to assist in evaluating the transaction. Jefferies LLC delivered to the conflicts committee an opinion as to the fairness from a financial point of view, to holders of SXE common units not affiliated with Holdings, of the consideration paid by Southcross to Holdings.
In conjunction with the acquisition, Southcross also has completed an amendment of its revolving credit facility. Among other things, the amendment provides Southcross with increased financial flexibility including higher leverage covenants through the third quarter of 2016. The amendment also establishes a higher applicable borrowing margin on Southcross’ revolving credit facility when its leverage ratio is above 5.0:1 as well as certain restrictions on the payment of quarterly distributions on the Southcross subordinated units held by Holdings.